Water with your whisky?

Europe may have found an answer to January’s Time Warner-AOL merger

IT IS a measure of the speed of change these days that a company that, four years ago, was France's dreary old Compagnie Générale des Eaux is now in talks to buy a combine that owns the world's biggest music business and one of Hollywood's great movie studios—and nobody is the least bit surprised. Vivendi, which has transformed itself from a water-and-sewerage utility into a company with a reasonable claim to the title of Europe's biggest integrated media-and-communications company, and Seagram, a Canadian whisky firm that also owns Universal Studios, confirmed on June 14th that they were talking about a merger. The deal, if it happens, will look something like Europe's version of Time Warner-AOL.

Vivendi, like AOL, wants content. It is France's number two in both fixed-line and mobile telephony. It also has a joint venture with Vodafone AirTouch, the mobile-phone giant that bought Germany's Mannesmann earlier this year, to establish a “multi-access portal” to the Internet (through a mobile phone, a PC, a television or whatever), which will be rolled out across Europe. The portal is called Vizzavi. “Corrupt French, for once, not corrupt English,” says a Vivendi executive. “Think of it as revenge.” Vizzavi's first site, the French one, will be launched on June 19th. Within a year, predicts Jean-Marie Messier, Vivendi's energetic chief executive, 80m people will have access to it.

The challenge, for any portal, is to come up with exclusive content that differentiates it from the rest. That is why AOL bought Time Warner. Mr Messier has access to movies and television content from Canal Plus, the French pay-TV company of which Vivendi owns 49%. Havas, Vivendi's publishing subsidiary, is strong in education and entertainment, and can provide the words. But the company has no music, which is turning out to be one of the most popular uses of the Internet. If the Seagram deal goes through, Universal will plug that gap, as well as providing American movies. And Vivendi might then get rid of its water and whisky, to become a pure media giant.

Seagram needs distribution. When Edgar Bronfman persuaded his family to buy MCA from Matsushita in 1995 (and named it Universal Studios once again), Seagram got a strong production company with little distribution. Since then, the competition has been buying up distribution. Seagram's foreign base means that it cannot own an American broadcast network. On the cable side, it is in a complex and uneasy relationship with Barry Diller, a Hollywood mogul and old ally and mentor of Mr Bronfman. Seagram swapped its TV-production arm for 45% of Mr Diller's USA Networks a couple of years ago, but the relationship has soured.

Seagram is now the worst-placed of the media companies for distribution. Disney and Viacom have big TV-broadcasting networks, ABC and CBS. Time Warner has bought Ted Turner's cable company. Rupert Murdoch's News Corporation has Fox's broadcasting and cable networks. Seagram has less than half of a second-rank cable company. The Time Warner-AOL deal makes things worse. Warner Music is one of the other big music companies—indeed, if its proposed merger with EMI goes through, it will be bigger than Universal. With AOL's subscriber base of 22m, Warner will be in a stronger position than the competition to get its music distributed on the Internet.

But the fit between Vivendi and Seagram is not quite as neat. For a start, Seagram needs distribution in America more than in Europe. Vivendi has no American distribution to offer Seagram, and Seagram has little European content. Its music business is heavily American, and European consumers are increasingly tending to buy local, rather than American, music. American movies play well in European cinemas, but local product increasingly dominates prime-time television.

In any case, the deal may never happen. Mr Bronfman has long been hawking his company around the industry, talking to News Corporation, Bertelsmann and Disney. He is reportedly seeking a fat premium over the $23 billion at which Seagram was valued. He also wants an executive role, which has been a sticking point. Two media moguls in one company is too many.